Self-Fulfilling Early-Contracting Rush

Hao Li and Wing Suen

International Economic Review, 2004, vol. 45, issue 1, 301-324

Abstract: In markets for entry-level professionals, the insurance motive drives some participants to sign early contracts. The rush to early contracting can be self-fulfilling, as both its effect on expectations about demand-supply balance in the subsequent spot market and the effect on it from changes in the demand-supply balance can be nonmonotone. Matching markets with more risk-averse participants, a greater uncertainty regarding relative supply of positions, or a more polarized distribution of applicant qualities are more vulnerable to self-fulfilling early-contracting rushes. Employers can have a collective interest in preventing early offers to a few promising applicants from starting the rushes. Copyright 2004 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2004
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